ALJDEC decisions subject to certification as final

2014A-2538-ROC-rf · Registrar of Contractors · 2015-07-20

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: June 29, 2015 APPEARANCES: Michael Lofton appeared on behalf of Complainants. Respondent M I Construction, LLC did not appear. The Arizona Registrar of Contractors was represented by Assistant Attorney General Seth T. Hargraves. ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer _____________________________________________________________________ FINDINGS OF FACT 1. In July 2009, the Arizona Registrar of Contractors (“the Registrar”) issued License No. B.256676-R to M I Construction, LLC (“Respondent”). 2. On or about June 23, 2014, the Registrar received a Complaint against Respondent from Michael A. Lofton (“Complainant”) alleging that Respondent abandoned its performance of a January 14, 2014 contract to build a residence at 3227 Dick Hevly, Flagstaff, Arizona for $640,272.45. Mr. Lofton paid a deposit of $67,082.00 to begin construction, and Respondent failed to perform any work on the project. 3. On or about January 16, 2015, the Registrar issued a Citation and Complaint alleging violations of A.R.S. § 32-1154(A)(1) and A.R.S. § 32-1154(A)(12). 4. Respondent failed to file an answer to the Citation and Complaint. As a result, on or about February 18, 2015, the Registrar issued a Default Decision and Order in which Respondent’s license was revoked. 5. On or about March 5, 2015, Complainants filed a claim in the amount of $67,082.00 to the Residential Contractors’ Recovery Fund (“the Fund”) to recover the deposit paid to Respondent.

6. On or about March 30, 2015, the Registrar issued a Notice and Order of Recovery Fund Ineligibility finding that Complainants were not eligible for a for one or more of the following reasons: Complainants Michael and Sandy Lofton did not own the subject property at the relevant times and therefore does [sic] not meet the definition of a “person injured” as required by § 32-1131(3). Complainants BZT Investment LLC does not meet the definition of a “person injured” as an LLC cannot occupy a residential structure as a residence.

Exhibit 3. It was further noted that “the property does not have a legal classification of 3.” 7. In evaluating Complainants’ claim, the Fund determined that on or about July 1, 2005, Complainants obtained title to the subject property. On or about July 14, 2005, Complainants signed over legal title of the property to BZT Investment LLC, which continues to hold title as of the date of the hearing. 8. BZT Investment LLC is an Arizona corporation and the only members of the corporation are Michael and Sandy Lofton. 9. Complainants requested a hearing on the Registrar’s determination that their claim was ineligible. The Registrar referred the matter to the Office of Administrative Hearings (“the OAH”), an independent agency, for an evidentiary hearing. 10. On May 6, 2015, the Registrar issued a Notice of Recovery Fund Eligibility/Payout Hearing. The Registrar sent a copy of the Notice of Recovery Fund Eligibility/Payout Hearing to Respondent at its address of record. 11. A recovery fund payout hearing was held on June 29, 2015, at 8:00 a.m. 12. Respondent did not request to appear telephonically at the hearing and did not request that the hearing be continued. Although the hearing took approximately one hour, Respondent did not appear through an authorized member, employee, or attorney. Consequently, Respondent did not present any evidence. 13. The Registrar submitted documentary evidence from the Coconino County Assessor establishing that in 2014 and 2015, the subject property where the house was to be built was classified as Class 2. 14. Complainants acknowledged the subject property was classified as Class 2 with the Coconino County Assessor at all times relevant to the contract, but indicated that the classification could only be changed to Class 3 once the residence was completed and they could start living in the home. 15. Complainants also argued that because they are the sole owners of BZT Investment LLC and as such, they own the subject property. Complainants essentially argued that the Registrar’s reliance on the legal difference between the corporation and the individuals is a matter of form over function. Complainants asserted that the Fund’s role is to protect homeowners injured by licensed contractors. CONCLUSIONS OF LAW This matter lies within the Registrar’s jurisdiction. See 32-1101 et seq. The Notice of Recovery Fund Eligibility/Payout Hearing that the Registrar mailed to Respondent at its address of record was reasonable. Respondent is deemed to have received the Notice of Recovery Fund Eligibility/Payout Hearing. See A.R.S. §§ 41-1092.04; 41-1092.05(D). Complainants bear the burden of proof and must establish eligibility to recover from the Fund by a preponderance of the evidence. See A.R.S. § 41- 1092.07(G)(2); A.A.C. R2-19-119(A) and (B)(1); see also Vazanno v. Superior Court, 74 Ariz. 369, 372, 249 P.2d 837 (1952). “A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.” Black’s Law Dictionary 1220 (8th ed. 1999). A.R.S. § 32-1131(3) defines a “person injured” who is eligible to recover from the Fund as “any owner of residential real property which is classified as class three property under section 42-12003 and which is actually occupied or intended to be occupied by the owner as a residence . . . .” The Arizona Court of Appeals has determined that the times when the owner of residential property must meet the requirements of A.R.S. § 32- 1131(3) to be eligible to recover a payout from the Fund are: (1) When the owner enters the contract with the contractor for the work to be performed, and (2) When the contractor performs the work and commits the statutory violation that injured the owner.[1] Arizona statute defines Class 3 property as “consisting of real and personal property and improvements to the property that are used for residential purposes, that are not otherwise included in class one, two, four, six, seven or eight and that are valued at full cash value. . . .” A.R.S. § 42-12003(A). A.R.S. § 42-12002(1) defines Class 2 property as follows: (a) Real property and improvements to property that are used for agricultural purposes and that are valued at full cash value or pursuant to chapter 13, article 3 of this title, as applicable. (b) Real property and improvements to property that are primarily used for agricultural purposes to produce trees other than standing timber, vines, rosebushes, ornamental plants or other horticultural crops, regardless of whether the crop is grown in containers, soil or any other medium, that are not included in class one, three, four, six, seven or eight and that are valued at full cash value or pursuant to chapter 13, article 3 of this title, as applicable. (c) Real property and improvements to property that are owned and controlled by a nonprofit organization that is exempt from taxation under section 501(c)(3), (4), (7), (10) or (14) of the internal revenue code if the property is not used or intended for the financial benefit of members of the organization or any other individual or organization, unless the financial benefit is for charitable, religious, scientific, literary or educational purposes, and that are valued at full cash value. (d) Real property of golf courses that is valued at full cash value or pursuant to chapter 13, article 4 of this title. (e) All other real property and improvements to property, if any, that are not included in class one, three, four, six, seven or eight and that are valued at full cash value.

“In applying a statute, . . . its words are to be given their ordinary meaning unless the legislature has offered its own definition of the words or it appears from the context that a special meaning was intended.” Mid Kansas Federal Savings and Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 128, 804 P.2d 1310, 1316 (1991). A.R.S. § 32-1131(3) requires that property be classified as Class 3 property under A.R.S. § 42- 12003 for its owner to be eligible to recover damages from the Fund. Complainants did not present any evidence that the subject property was classified as Class 3 property, rather than Class 2 property, in January 2014, when they entered into the contract with Respondent. Therefore, Complainants did not establish that they were eligible for an award from the Fund. RECOMMENDED ORDER Based on the foregoing, it is recommended that on the effective date of the Registrar’s final order, Complainants’ claim be closed as Complainants being deemed ineligible to access the Recovery Fund. In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be 40 days from the date of that certification. Done this day, July 20, 2015.

/s/ Tammy L. Eigenheer Administrative Law Judge

Transmitted electronically to:

Jeffrey Fleetham, Director Registrar of Contractors ----------------------- [1] See McMurren v. JMC Builders, Inc., 204 Ariz. 345, 350, 63 P.3d 1082, 1087 (App. 2003) (citing A.R.S. § 32-1132(A)). In that case, after the residence in which the homeowner had been living at least part-time was damaged by fire, the homeowner hired the contractor to perform repairs. Because the dwelling was uninhabitable after the fire, the homeowner lived temporarily in a motor home parked in the driveway. The residence subsequently was turned into a group home. The court held that the homeowner had established that he was eligible for a payout from the Fund because he had lived in the residence when he entered the contract for the contractor to repair the damages and while the contractor performed the repairs. See id. at 351, 63 P.3d at 1088.

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